Econet pulls no punches

by Staff reporter

11 Feb 2017 at 22:42hrs | Views

SEETHING mobile telecommunications company Econet Wireless Zimbabwe (EWZ) said last week its competitors NetOne and TelOne have since accrued more than US$25 million in unpaid interconnection fees even after Government assumed US$60 million in obligations that had build up before 2013, it has been learnt.

The mobile operator, which insists that such practice is fraudulent and blatantly in breach of regulations, has of late been insinuating that the obtaining operating environment is uneven. Telecel Zimbabwe and NetOne are all owned by Government.

For a long time Econet has been questioning how it can be able to fairly compete in circumstances where its indebted competitors have not even fully paid up for their licence fees, which directly impacts on the price structure in the sector.

While the listed company has fully paid the US$137,5 million licence fee, NetOne and Telecel Zimbabwe have negotiated payment plans. But Telecel Zimbabwe, which is now majority-owned by Government after the acquisition of Netherland-based VimpelCom's 60 percent stake in the business, has not been able to meet its obligations since it rolled out its services to the public in 1997.

In fact, Government subsequently cancelled its licence on April 28, 2015. But the company, however, successfully appealed in the courts. So divisive and contentious was Telecel licencing status that Econet on July 25, 2013 cut off Telecel subscribers, arguing that the company did not have a valid operating licence.

Without any financial encumbrances to pay its licence fee or settle debts, Econet noted, Telecel was actually "free to engage in practices that have distorted the playing field". And it seems Econet still maintains its argument.

Last week, the company told The Sunday Mail Business that the US$60 million debt that was inherited by Government and liquidated as part-payment of the 2013 licence fees was money that was validly owed to the operator.

"NetOne and TelOne owed money to Econet at the time. The Government of Zimbabwe assumed these obligations and itself became a debtor to Econet. Instead of Government paying Econet so that Econet can return the money to the Government of Zimbabwe as part of the licence fee, the Government of Zimbabwe agreed to settle on a net basis," said Econet, adding: " To argue that the use of a debt owed to Econet to settle part of the licence obligation is ludicrous. Such a lack of appreciation of basic principles of finance and economics is the reason some parastatals incur debt without any intention to settle them!

"Econet is currently owed more than US$25 million by TelOne and NetOne which has not been paid for interconnection between the networks . . .

"NetOne and TelOne have been collecting money for calls made onto the Econet network by its customers but have not been paying Econet its share of the money collected. It is a requirement under the licence conditions for these payments to be settled between the parties. Their failure to pass on the money they already collected from their customers is more than reckless. It is fraudulent."

On the other hand, Econet says it does not owe any of its competitors as it always settles all invoices on time.

Cost structures feed into different pricesMarket watchers say the recent dispute on flow prices for the telecommunications sector can be traced to Econet cost structures — including compliance to statutory obligations — which makes it unable to levy the same charges as its "non-compliant" rivals.

Leaked minutes of the meeting held by Telecommunications Operators Association of Zimbabwe on October 17, 2016 show Econet's proposed floor prices of US0,12c for voice and US0,05 for data were relatively higher than other proposals.

After effecting its new pricing structures — which became effective January 9, 2017 — prices shot through the roof. And after consumers protested the prices, Econet argues that it was effectively portrayed "as gluttonous and insensitive to consumers" by the regulator.

Econet, which has invested US$1,3 billion so far on its local network, seemingly contends its competitors are determined to use its financial burden to under it.

On May 23, 2012 the parent company — Econet Wireless Global (EWG) — secured a US$362 million facility of which US$307 million was earmarked for the local subsidiary. In December 2015, it was also announced that the local unit will get US$300 of the US$500 million facility secured from China Development Bank and ZTE.

Last week, EWZ said of the cumulative US$752 million facilities it secured for its network, it has since repaid more than US$624 million. About US$128 million remains outstanding.

The US$130 million rights offer, which was approved by shareholders at an emergency general meeting on February 3, is set to retire the obligations. However, the structure of the rights offer, which demanded shareholders to follow their rights through paying directly to a foreign bank, proved controversial.

A much more convenient structure was then developed by the Reserve Bank of Zimbabwe and EWZ. A default by EWZ will be catastrophic as it has implications on the country's risk profile, particularly for the private sector at a time.

A generally difficult business environment is also understood to be holding back the company's new free-to air service, Kwese Sports, which has been launched in some African countries.